India service activity contracts for ninth month

AnantVijay

NEW DELHI--India's services-sector activity shrunk for the ninth month in a row as new orders fell, heightening concerns that the south Asian economy would find it hard to recover from a protracted slowdown.

The seasonally-adjusted HSBC Service Sector Business Activity Index, prepared by Markit, fell to 47.5 in March from 48.8 in February, according to a survey released Thursday. A figure above 50 indicates expansion and one below a contraction.

Findings of a similar survey by HSBC and Markit released Tuesday showed manufacturing activity in India also slowed in March.

Services contribute about 60% to India's gross domestic product and an improvement in the sector is critical to boost an economy growing at its weakest pace in a decade hurt by high inflation, stalling industrial development and a slow pace of policy reforms.

"Growth is expected to remain subdued in coming months, but pick up gradually during the second half of 2014," said Leif Eskesen, HSBC's chief economist for India. "This, however, assumes that the election outcome provides the elected government with a workable mandate," he added.

National elections in India will begin next week and go on till mid-May. Investors are hoping that the next government would have a strong electoral mandate that would allow it to push through tough policy reforms needed to kick-start growth.

A recent softening in inflation and the government's efforts to revive investments have also raised optimism about a recovery, even though a gradual one.

HSBC said the survey showed inflationary pressures eased in March, with both input costs and output prices rising at weaker rates. India's official inflation data has also shown that trend. The benchmark wholesale inflation rate dropped to a nine-month low of 4.68% in February, according to most recent data.

Indian businesses are hoping lower inflation would allow the central bank to relax its tight monetary stance and help support growth.

On Tuesday, the Reserve Bank of India left its main lending rate unchanged after raising it thrice since September.

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